Crude-oil futures fall, close above $81 as U.S. dollar rises

LianaB. Baker

PolyaLesova

SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed with a modest loss Tuesday, weighed by a stronger U.S. dollar, but coming off intraday lows as sentiment improved about the global supply-demand balance.

Oil for April delivery closed at $81.49 a barrel, down 38 cents, or 0.5% on the New York Mercantile Exchange. Earlier, the contract hit a low of $80.16, according to FactSet Research data. It had topped $82 in the prior session.

Oil futures fell further in electronic trade late Tuesday after the American Petroleum Institute reported an unexpected rise in crude-oil stockpiles for the week ended March 5.

The dollar index
DXY, -0.09%
which tracks the performance of the greenback against a basket of major currencies, gained 0.2% to 80.583 from 80.440 late Monday but off an earlier high of 80.855 The euro picked up ground against the U.S. dollar, however. See Currencies

"The U.S. dollar has strengthened since the open and that's weighing on a number of commodities," said Peter Buchanan, senior economist at CIBC World Markets.

A stronger dollar often correlates with a drop in the prices of dollar-denominated commodities, such as gold and oil, because it makes them more expensive for holders of other currencies.

Supporting oil, Buchanan added, a recent spate of violence in the oil-producing nation of Nigeria has fed fresh worries about supply.

Later Tuesday, an industry trade group will release its weekly oil inventories report, a precursor to the U.S. government's Wednesday report.

EIA ups demand outlook

Energy investors also assessed a more optimistic forecast for oil demand from the U.S. government's Energy Information Administration.

In its monthly outlook on energy, the EIA said it now expects oil consumption growth of 1.5 million barrels a day this year, up from 1.2 million barrels a day in last month's outlook.

With that demand, oil prices should stabilize above $80 a barrel, the EIA said. The price of crude oil to average above $80 a barrel this spring, then rise to about $82 a barrel by the end of the year. Crude should climb to $85 a barrel by the end of 2011, the EIA added. Read more on EIA forecast.

The agency said it also cut its projections for extra production capacity in countries that are part of the Organization of the Petroleum Exporting Countries cartel. Still, since "surplus capacity remains ample, dampening the likelihood of a large upward swing in prices," it said.

Energy prices pared losses as U.S. stocks rose, though they came off earlier highs as stocks entered the final session of the day.

The Dow Jones Industrial Average
DJIA, -1.24%
added 12 points, or 0.1%, to 10,564. The S&P 500 Index
SPX, -1.54%
added 2 points, or 0.2%, to 1,140. The broader benchmark is up 68% from this time last year, when it hit its low for the bear market and then rebounded on expectations of a global economic recovery. See U.S. Market Snapshot.

Oil futures, based on the most active contract, have risen about 73% in the past year on the same hopes. In recent months, however, the contract had trouble getting much past the $80 mark, as investors believe global demand isn't likely to outstrip plentiful supplies.

"Despite the new positive sentiment, the fundamental picture remains cloudy as supplies are still elevated and the industry inventory reports continue to show builds week after week," said commodities Brian Niemiec of Susquehanna Financial Group, in emailed comments.

Heating oil ended the regular session at $2.09 a gallon, down 1.6 cents, or 0.7%.

Gasoline for April delivery lost nearly 3 cents, or 1.3%, to $2.089 a gallon.

Natural gas ended at $4.516 per million British thermal units, down 1.1 cents, or 0.2%.

API in focus

API said late Tuesday oil stockpiles rose 6.5 million barrels. Analysts polled by Platts were expecting an increase of 2.1 million barrels.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information.
All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only.
Intraday data delayed at least 15 minutes or per exchange requirements.